21 May 2021
Victorian Treasurer Tim Pallas handed down his 2021-22 Budget on 20 May 2021 focusing on mental health and wellbeing, as well as increasing revenue to pay for previously committed spending.
As was the case with the prior year budget, a number of State Tax changes were announced, some of which will be welcomed and some, such as the introduction of a new land transfer duty rate for high value property transactions, which may not be.
Here are the key State Tax announcements for businesses and personal tax payers.
New payroll tax surcharge
A new payroll tax surcharge, known as the Mental Health and Wellbeing Levy will apply from 1 January 2022, and will impact:
- Employers with a national payroll above $10 million will pay a rate of 0.5 percent of Victorian wages above the threshold; and
- Employers with a national payroll above $100 million will pay an additional 0.5 per cent of Victorian wages above the threshold.
Existing payroll tax exemptions for private schools, hospitals, charities, local councils, and wages paid for parental and volunteer leave will apply for this levy.
The revenue from this payroll tax surcharge, together with government funding, will be solely used to fund mental health services.
Whilst this payroll tax surcharge is a burden on business, it is positive to see that the mental health and wellbeing of Victorians is now a key priority.
Payroll tax-free threshold increase
The payroll tax-free threshold will increase from $650,000 to $700,000 from 1 July 2021 instead of by the 2022-23 financial year, as previously announced.
Whilst this is a minor threshold increase, many businesses will benefit from this.
Payroll tax rate reduction for regional employers
The regional employer rate will be reduced from 2.02 percent to 1.2125 percent from 1 July 2021 instead of by the 2022-23 financial year, as previously announced.
Many regional employers will benefit from this regional payroll tax rate change.
Land tax rate increase for high-value landholdings
The land tax rate for taxpayers with larger property holdings will increase as follows from 1 January 2022:
- Total taxable landholdings greater than $1.8 million will increase by 0.25 percent; and
- Total taxable landholdings exceeding $3 million will increase by 0.3 percent.
The land tax rate change will apply to both the general and trust surcharge rates.
As a result of this announcement, tax payers that own land can expect to pay additional land tax from the next land tax year.
Land tax tax-free threshold increase
The tax-free threshold for general land tax rates will increase from $250,000 to $300,000 with effect from 1
This means that for land not held on trust, land tax will only be payable if the total taxable value of the taxpayer’s Victorian land is equal to or exceeds $300,000.
Given land values in Victoria, this minor increase to the threshold is unlikely to impact many tax payers.
We note that there have been no changes to the trust rate scale.
Vacant residential land tax exemption for new developments
The vacant residential land tax exemption for new developments will be extended to apply for up to two years with effect from 1 January 2022. That is, a newly constructed dwelling will not be subject to the vacant residential land tax if it remains unoccupied for a period of up to two years post completion.
This change will assist developers that have been unable to sell newly constructed dwellings in a timely manner such as to be exempt from the vacant residential property tax.
Removal of land tax exemption for private gender-exclusive clubs
Private gender-exclusive clubs will cease to be eligible for the land tax exemption available for societies, clubs or associations with effect from 1 January 2022.
As a result of this change, there will be an increase in land tax payable by private gender-exclusive clubs with high-value landholdings that currently receive a land tax exemption.
Premium land transfer duty for high-value properties
A new land transfer duty threshold for high value property transactions will be introduced for contracts entered into from 1 July 2021.
As a result of this change, property transactions with a dutiable value over $2 million will be liable to transfer duty of $110,000 plus 6.5 percent of the dutiable value in excess of $2 million. A flat rate of 5.5 percent currently applies where the dutiable value exceeds $960,000.
Given recent property value increases, as well as anticipated future property price increases, this change is likely to negatively affect many.
Land transfer duty concession for new residential property within Melbourne
A concession of up to 100 percent of the land transfer duty otherwise payable will be provided on the purchase of new residential property located in the Melbourne local government area.
Specifically, the following concessions will be made available for unsold new residential properties:
- Properties unsold for less than 12 months since completion will be eligible for a 50 per cent concession for contracts entered into from 1 July 2021 to 30 June 2022; and
- Properties unsold for 12 months or more since completion will be eligible for a 100% concession for contracts entered into from 21 May 2021 to 30 June 2022.
However, this concession will only apply to properties with a dutiable value of up to $1 million.
Importantly, this concession will apply to the duty otherwise payable, excluding any applicable foreign purchaser additional duty.
Off-the-plan duty concession eligibility threshold increase
The threshold for the off the plan concession for land transfer duty will increase to $1 million for all home buyers that enter into a contract from 1 July 2021 to 30 June 2023. Importantly, for this concession to apply, the property must be the principal place of residence of at least one of the purchasers (as is the case with the existing concession).
As a result of this increase, the dutiable value of the property (being the contract price less the construction costs incurred on or after the contract date) can be up to $1 million.
Windfall gains tax for high-value landholdings
Large windfall gains associated with planning decisions to rezone land will be taxed from 1 July 2022.
Specifically, the total value uplift from a rezoning decision will be taxed at 50 percent for windfalls above $500,000, with the tax phasing in from $100,000.
The new tax will not apply to rezonings to and from the Urban Growth Zone within existing Growth and Infrastructure Contribution areas, and rezonings to Public Land Zones. However, it will apply to rezonings between zone types rather than between zone sub-categories.
Increased wagering and betting tax
Wagering and betting tax will increase from 8 percent to 10 percent of net wagering revenue from 1 July 2021, bringing Victoria into line with the rate that applies in New South Wales, and remaining below the rate that applies in other states.
As a result of the increased tax rate, wagering revenue that is returned to the Victorian Racing Industry will be increased from 1.5 per cent to 3.5 per cent.
Point of consumption tax framework extended to include Keno tax
The point of consumption tax framework will be extended to Keno tax from 15 April 2022 to ensure all companies supplying keno to Victorian customers pay the relevant Victorian tax.
As part of this change, all licensed keno service providers will be liable to pay tax, at the relevant prevailing rate, calculated on the expenditure of customers located in Victoria, regardless of where the service provider is located or licensed.